US: Construction Spending

Tue Jan 03 09:00:00 CST 2017

Consensus

Consensus Range

Actual

Previous

Revised

Construction Spending - M/M change

0.6%

0.1% to 0.8%

0.9%

0.5%

0.6%

Construction Spending - Y/Y change

4.1%

3.4%

Highlights
Construction had been lagging through most of 2016 but, like the factory sector, appears to have picked up steam going into year-end. Spending rose 0.9 percent in November which just tops Econoday's high estimate and is the best reading since June.

Residential spending rose 1.0 percent in the month on top of October's 1.6 percent gain. The gain here is concentrated in single-family homes which offset a monthly dip for multi-family units which otherwise have been leading the residential sector. Home improvements added to the spending in November.

Non-residential spending was also strong, up 0.9 percent with most categories showing gains led by office construction and transportation construction. Public spending was also solid including a 3.1 percent monthly jump in Federal spending.

The breadth of gains is most impressive in this report, one that will give a lift to fourth-quarter GDP estimates.

Market Consensus Before Announcement
What had looked to be a flat year for construction spending turned higher in October with a 0.5 percent gain and a year-on-year rate of plus 3.4 percent. October's results included sharp upward revisions for the prior two months in this often very volatile report. Residential spending showed October strength for both single-family and multi-family homes with nonresidential spending mostly slowing. Forecasters see November's headline coming in with a second straight strong gain, at 0.6 percent.

Definition
The dollar value of new construction activity on residential, non-residential, and public projects. Data are available in nominal and real (inflation-adjusted) dollars.

Description
Construction spending has a direct bearing on stocks, bonds and commodities because it is a part of the economy that is affected by interest rates, business cash flow and even federal fiscal policy. In a more specific sense, trends in the construction data carry valuable clues for the stocks of home builders and large-scale construction contractors. Commodity prices such as lumber are also very sensitive to housing industry trends.

Businesses only put money into the construction of new factories or offices when they are confident that demand is strong enough to justify the expansion. The same goes for individuals making the investment in a home.

A portion of construction spending is related to government projects such as education buildings as well a highways and streets. While investors are more concerned with private construction spending, the government projects put money in the hands of laborers who then have more money to spend on goods and services.

On a technical note, construction outlays for private residential, private nonresidential, and government are key inputs into three components of GDP--residential investment, nonresidential structures investment, and the structures portion of government expenditures.

That is why construction spending is a good indicator of the economy's momentum.

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